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CONTRACTS + RISKS + MANAGEMENT =

CONTRACTUAL RISK MANAGEMENT?

 

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© Petri Keskitalo 2006-2009

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mcorim@mcorim.com

Last updated

11.06.2009

 

Proactive contracting and risk management have become an important part of the new vocabulary of commercial contract law books and courses for contracting professionals, for example in Finland, during the past few years. More and more often one even stumbles over the term “contractual risk management” in such material but very seldom does one find a definition of that term. It can be claimed that the lack of definition(s) of this term in most of the current literature dealing with this subject is due to varying conceptualizations of the underlying interplay between contracts, risks and management. Therefore, one of the goals of the MCoRiM is to discuss the different conceptualizations of that interplay.

 

However, before you set on your journey in this interdisciplinary world of knowledge on the interplay between contracts, risks and management, it might be helpful to realize the existence of the different types of knowledge concerning such an interplay. Such differences can be visualized as relationships between layers of a multilayered body of knowledge. Such a body of knowledge can namely be illustrated as a pyramid, where the different layers support and guide one another:

 

 

 Due to the practical nature of their work, many of the readers are most likely familiar with the pragmatic layers of knowledge of the interplay between contracts, risks and management.  Such pragmatic layers of knowledge focus on the practical knowledge, practices, tools and skills of contracting professionals. Accordingly, such pragmatic layers focus on the questions of how and with what to manage the everyday interplay between contracts, risks and management. More experienced contracting professional have in addition developed knowledge on the limits and potential of this interplay and therefore understand how far the practices and tools for the management of this interplay can be driven. Nevertheless, such pragmatic knowledge can be better understood, enhanced and developed with help of the more theoretical and fundamental layer of knowledge that focus on the question of what the interplay between contracts, risks and management is really about and what alternative ways (models) we have for the governance of that interplay. An even more theoretical layer of knowledge explains the reasons why the interplay between contracts, risks and management is so important in the world of today; explains why this interplay is conceptualized in so many different ways by those who work within the field of contracts, risks and management; and last but not the least, enables us to look for new ways of conceptualizing the interplay between contracts, risks and management.

 

Although knowledge of all these different layers will enhance our understanding of the true nature of the interplay between contracts, risks and management, people working with the pragmatic perspectives to such interplay do not need to master all layers of knowledge, e.g. the theoretical foundations of their work. They should however be familiar with the why and what-questions in order to better understand the with-what and how-questions, and in order to fully realize the potential in the interplay. Similarly, those who work with the theoretical layers of knowledge need to be familiar with the with-what and how-questions in order to be able to develop adequate theoretical explanations and models of this contracting phenomena. On the other hand, the theoretical knowledge might provide a shortcut to creative solutions for the governance of the interplay between contracts, risks and management since a theoretical approach to the issue intends to identify the underlying mechanisms of the interplay, below the casuistic surface of practices within the fields of contracts, risks and management.

 

A mutual understanding between these theoretical and pragmatic approaches is the basis for the understanding of the underlying potential in the interplay between contracts, risks and management. Such a potential can namely be fully realized with help of an adequately multilayered knowledge of the interplay. This website shows only few possible directions for the development of such a mutual understanding, which hopefully will help the readers to develop their own understanding of the interplay between contracts, risks and management.

 

Nevertheless, there is yet another layer of knowledge that can be placed at the very top of the pyramid. This layer is quite essential for a successful application of the knowledge on the interplay between contracts, risks and management but it has less to do with pure knowledge or skills. Without this layer, the knowledge on the interplay will lack the cutting edge that is needed in the successful implementation of such knowledge in the governance of the contracts, risks and management of an organization. Such a cutting edge should be found in the creative minds of those responsible for various aspects of the organizations contracting activities.

 

Now it is time for you to choose the direction for your journey  You can either choose one of the three perspectives to the interplay or one of three interpretations of such an interplay between contracts, risks and management. Continue your journey with help of the illustration on your left hand side, click here to go back there.